Bankruptcy Law

Lawyer known for porn-downloading litigation hid $178K in closet, trustee suit says

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A Minnesota lawyer known for his controversial porn-downloading litigation against individual defendants was facing $576,000 in court-imposed sanctions at last report.

However, Paul Hansmeier may not be able to use bankruptcy as a shield.

In December, a judge rejected his Chapter 13 petition, converting the case to a Chapter 7 bankruptcy. And on Thursday, the U.S. bankruptcy trustee’s office filed suit to deny him bankruptcy protection, citing alleged false testimony about his assets and $178,000 in cash he is accused of hiding in a closet, the Minneapolis Star Tribune reports.

“This case was designed for one purpose only, to thwart the collection efforts of debtors. It was not because the debtor now wants to pay creditors in full,” said Judge Kathleen Sanberg in December, when she ordered the Chapter 13 case converted to a Chapter 7. Ars Technica’s Law & Disorder reported on the ruling at the time.

In the trustee’s suit filed last week, Hansmeier is said to have set up a trust administered by his wife, who is also a lawyer, plus a Delaware company that was funded by a $500,000 transfer from his law firm. Both the trust and the company were allegedly a source of funds to cover Hansmeier’s personal expenses, and the company authorized a $150,000 loan to the law firm, for which no records have been provided to show how the money was spent, the suit says.

Then in 2013 Hansmeier took a $150,000 trust transfer and “hid the cash in a box in a closet,” along with another $28,000 from his wife, the suit says.

The suit also points to conduct that allegedly occurred while Hansmeier was still pursuing the Chapter 13 bankruptcy. It, included $83,000 in lawsuit settlements the trustee says he did not report to the court and an undisclosed planned sale by Hansmeier and his wife of their condominium for $1.2 million to a judge on the St. Louis-based 8th U.S. Circuit Court of Appeals, the Star Tribune reports.

Attorney Barbara May represents Hansmeier. Although she has not yet seen the trustee’s suit, she said she thinks her client has been “scrupulously honest” and expects him to deny the allegations.

After his controversial porn-downloading practice ground to a halt, Hansmeier went on to file a number of disability discrimination suits against businesses. Like his earlier practice, it was controversial because it was perceived as threatening litigation for the purpose of obtaining settlements.

State lawmakers are working on potential legislation that could make it more difficult to pursue such disability suits, and a legal ethics case against Hansmeier is ongoing, the newspaper notes.

Related coverage: “Judge rejects Chapter 13 filing by lawyer known for porn-downloading lawsuits”

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